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Put option volatility smile justin


Put option volatility smile justin


The part of this question appropriate to this site is whether the assumptions of the Black-Scholes equation lead to the solution they reach. That question has been vetted by many and the conclusion is that the analysis is correct. volatilty After the 1987 crash people realized that extreme events were more likely than the log normal distribution suggests.

They developed better option models, leading to the out of the voltaility options to be priced more expensively to account for the greater risk. We address three questions relating to the interest rate options market: What is the shape of the smile. What are the economic determinants of the shape of the smile. Do these determinants have predictive power for the future shape of the smile and vice versa. We find a clear smile pattern in interest rate options. This disparity is known as the volatility skew.




Put option volatility smile justin

Put option volatility smile justin

Put option volatility smile justin